Tax-free childcare scheme delayed
The introduction of the government's tax-free childcare scheme is to be put back until early 2017, following a legal challenge from providers of existing childcare vouchers.
The new government scheme promises to pay 20% of working parents' childcare bills, offering savings of up to £2,000 per child. But the scheme was challenged by providers of childcare vouchers, which will be forced to close to new members once the government scheme is launched.
Although the Supreme Court over-ruled the challenge, the government will not be able to get its scheme up and running in time for the planned Autumn launch.
Exchequer Secretary to the Treasury Damian Hinds said: "We are pleased that the government's proposals for delivering Tax-Free Childcare have been found to be clearly lawful. This government is absolutely clear on the importance of supporting families with their childcare costs."
He added: "It is disappointing that some organisations involved in the existing scheme felt the need to take and persist in this costly and wasteful course of action, which has led to a delay in the launch of Tax-Free Childcare."
The news will come as a disappointment to parents who are not eligible for the existing childcare scheme – for example they are self-employed or vouchers are not offered by their employer.
However, because existing members of the current childcare voucher scheme will not be forced to switch to the government scheme, it does provide working parents with more time to work out which deal will offer them the greatest savings.
According to Busy Bee Benefits, middle- to low-earning parents, families where only one parent works, those who only use childcare a few days a week and those who have children over the age of 12 may all be better off with childcare vouchers. Parents who joined the scheme before 2011 who pay higher rate tax will also need to think twice before leaving the scheme as they still receive 40% tax relief on their vouchers.
Research conducted by Busy Bee Benefits suggests that 80% of parents will be better off continuing to use childcare vouchers.
John Woodward, CEO of Busy Bee Benefits said: "With Tax Free Childcare, the Government will be subsidising 20% of a child's childcare, on costs of up to £10,000 per year. Therefore, to get maximum savings, parents must spend £8,000 per child, each year. To get the maximum savings using Childcare Vouchers, parents are only required to spend £2,916 each year."
He added: "Both parents can use Childcare Vouchers; therefore savings could double to more than £1,800 at an outlay of only £5,832 per family to get maximum savings," he concluded.
Parents who want to start buying childcare vouchers – which offer tax relief on purchases worth up to £243 a month - need to do so before the government scheme launches in 2017.
If your employer doesn't offer childcare vouchers it is worth raising the matter with them. In addition to savings on your childcare bills they also offer employers National Insurance savings worth up to £402 a year per employee that signs up to the scheme.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
A special government scheme operated through employers that allows you to pay for childcare from your PRE-tax salary. The vouchers cover childcare up to 1 September after your child’s 15th birthday (16th if they are disabled) and can be used at any registered and regulated nursery, playgroup and for nannies, childminders or au pairs.